Over the years, landowners and lessees have relied on a verbal lease when coming to an agreement about leasing farmland. Due to the complications and misunderstandings that may occur with a verbal lease, Michigan State University Extension recommends farmers use a written lease agreement.
With the rise in commodity prices, some landowners, or lessors, have been cancelling verbal leases prior to their expiration in order to attain higher income. Attaining higher income is understandable, but many times the lease is terminated after the current tenant has invested crop inputs such as fertilizer and tillage for the next crop. Without a written lease, the producer, or lessee, loses that investment because there are no written protections to have those costs reimbursed.
To prevent the problems involved with verbal leases, MSU Extension district farm management, I worked with MSU Extension educator Dennis Stein and attorney Trent C. Hilding to produce the Michigan Cash Farmland Lease (E3193).
It’s designed to be flexible so farmers may use it in a variety of situations including those specific to Michigan. Previously, MSU Extension did not have a land-leasing template specific to Michigan law. Instead, we provided a template from Iowa State, Missouri, or other land-grant universities.
The template, an interactive Microsoft Word form, provides choices parties can select appropriate to their situation. Producers or landowners can fill it out on a computer, save it and print it out.
The template provides the structural framework for a business agreement, or lease, between a cropland landlord and a tenant in regard to the termination rights and responsibilities of each party. It also covers insurance requirements, environmental standards, landowner crop liens and irrigation water use reporting.
In parts of Michigan, lessees are willing to invest in permanent improvements such as irrigation wells, center pivot sprinklers, permanent crop plantings and long-lasting fertilizer investments. This template provides a timetable and method for the lessor to reimburse the lessee for unrealized investment in case the lease terminates early, such as in the sale of a farm.
The lease provides an alternative method to settle disagreements other than litigation. You can find the free template in the MSU bookstore.